Papua New Guinea Sovereign Wealth Fund

Last updated: December 2017

The Papua New Guinea Sovereign Wealth Fund (PNG SWF) is an important mechanism to manage external shocks to the economy, to support the budget to fund priority areas such as education, health and infrastructure, and to invest for the benefit of future generations.

The Organic Law on the Sovereign Wealth Fund was passed by the Parliament in July 2015 to come into operation in 2016. According to the 2015 Budget, from 2016 onwards all mining and petroleum taxes were to have been deposited into the Sovereign Wealth Fund instead of flowing directly to the government’s consolidated revenue fund (CRF). However, a report from the International Monetary Fund (IMF) stated that the SWF was not yet in operation as at the end of 2016.

The SWF will comprise of two funds: the Stabilisation Fund and the Savings Fund. Tax revenues received from mining and petroleum projects, including the PNG LNG project, will be directed to the Stabilisation Fund, and be available to be drawn down into the budget, in accordance with a five-year moving average, to fund expenditure needs. When revenue flows are large, the excess will be deposited into the Savings Fund.

The Stabilisation Fund and the Savings Fund will each receive a proportion of the mining and petroleum dividends paid by state-owned enterprises. The Savings Fund will also receive some of the proceeds of state-owned assets that the government agrees to sell.

The government intends to appoint an experienced and well-qualified board to oversee the investment of these funds offshore to diversify risk and, over time, build up financial assets. The government will provide an investment mandate to the board, expressing the government’s expectations for the management of the funds. It was intended to set up this board, and a secretariat, in the first quarter of 2017 however this has not occurred at the time of writing this report. According to the announcement made by Treasury in the 2018 Budget tabled in Parliament recently, arrangements are being finalised to establish the board. The Department of Treasury stated that in the interim, all mineral and petroleum dividends are directed to the National Budget until the SWF is in place in 2018.

According to Treasury, the projected mineral and petroleum revenues and medium-term inflows between the budget and the SWF were yet to be operationalised. Based on current estimates by Treasury, 50% of mining and petroleum tax revenues will be channelled to the SWF Stabilisation Fund, while the other 50% will flow directly to the CRF to finance government operations. The establishment of the board and a secretariat to operationalise the SWF had been further pushed back to 2018, with the World Bank agreeing to assist the Bank of PNG and the Department of Treasury to establish the SWF Secretariat.

FYI: Commentary on the establishment of the Sovereign Wealth Fund from Transparency International

‘In November 2016 the Government announced that it engaged an independent firm to recruit suitable candidates to sit on the Sovereign Wealth Fund board, which will begin its work in early 2017. But the recruitment drive to get the new SWF board membership is now delayed due to challenges facing the accounting firm KPMG, says the BPNG governor Loi Bakan. The absence of accountability and transparency in the SWF board recruitment process and the failure by the Department of Treasury and the Bank of Papua New Guinea (BPNG) to continue to give the public updates is a cause for concern. The SWF bill is one of PNG’s most important legislations after 42 years of independence as it will literally guarantee the future of the next generation through the collection and savings of windfall revenue from gas and mineral exports.’

– Transparency International

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